Gustaw Gressel (on the right) (Heinrich-Böll-Stiftung, CC BY-SA)
CE Financial Observer: The Ukrainian authorities have talked a lot about the need for reforms in the country. Looking at the last two and a half years, how has it worked out?
Gustav Gressel: One third of the reforms undertaken were successful. We will have to wait for their real effects, so it is difficult to say at this point what percentage of their objectives was successful. We should appreciate the reform of the defense system, the banking system and the public procurement system. The introduction of electronic declarations of assets should prove to be a good tool for fighting corruption. I appreciate the activity of the Ministry of Economy, which is doing a lot for the deregulation of the various areas of the economy. The Ministry of Infrastructure also deserves praise.
The achievements in the areas of justice and internal affairs are insufficient. The people themselves are a big barrier to reforms, unfortunately. On the one hand, there are many government officials, judges and prosecutors who see the point of the changes and want to contribute to the improvement of the state, but at the same time there are many others who would like to block any changes. The same can be observed in the uniformed services. There are many people who want to maintain the status quo.
When the groups that had been set up began to investigate corruption in the uniformed services, in the police, they encountered a wall – the officers did not want to cooperate or issue the necessary documents.
In the report you conclude that “while Ukraine has ultimate responsibility for the reform process, Europe, too, bears some responsibility for its failings”. Where did the EU make a mistake and is it already too late to fix it?
The EU didn’t push Ukraine hard enough to introduce changes back when the reform process was just beginning. After the events on Independence Square in May 2014, presidential elections were held, followed by parliamentary elections. New people came to power and it was possible to talk to them and to persuade them. The first months after the elections are always the best time to carry out reforms, even those that are the most difficult, because the people are expecting something new, and at the same time – which is important in the case of countries such as Ukraine – the oligarchs are confused, because they still haven’t made new alliances and have not yet been able to discern who they can negotiate with.
Meanwhile the first eight months after the events on the Maidan were characterized by lack of any action. No reforms would have been pursued in this period at all, had it not been for the International Monetary Fund, which insisted on the introduction of certain changes as a condition for the provision of financial aid. The new Ukrainian authorities had many discussions about the future shape of the state, but did little to bring it about. The people who were supposed to prepare the legal framework were only appointed after Brussels began asking about specifics.
The sin committed by the European Union was that it didn’t sufficiently oblige Kiev to pursue reforms. When we look at the areas that the EU was monitoring (e.g. the banking system), we can see that the Ukrainians succeeded with the task at hand. The reform of the defence system succeeded, because the threat from Russia provided the incentive.
Perhaps the EU demanded the impossible of Ukraine? The plans were ambitious but is it possible to transform Ukraine into a well-functioning country with the rule of law in just a few years?
Economic transformation always takes a long time, so patience is required. The EU cannot leave Ukraine alone and stop pushing for further reforms, because Kiev has already wasted a lot of time since the Orange Revolution, following which the authorities made a lot of promises but with no subsequent breakthrough.
Society remembers that wasted opportunity and now demands real, profound changes. If the Ukrainians themselves are demanding reforms, even if they will be painful, then the European Union cannot stop pressing for these changes.
What are the main problems of Ukraine today?
Corruption, excessive market regulation, overgrown bureaucracy, the lack of something that I would call the culture of responsibility. What I mean is that many officials and politicians have no sense of responsibility for their own decisions. For example, Yulia Tymoshenko is openly criticizing the authorities for the direction of some of the reforms, but listening to her, I can’t help but wonder what it was that she did when she was the prime minister and whether she is aware of how much time and energy she wasted on pointless bickering with President Yushchenko?
In the Ukrainian administration we see a lot of short-sightedness, making decisions without considering their long term consequences. At the same time, I don’t believe we should be criticizing Ukraine for every little stumble and deviation from the adopted patterns, as we are seeing various irregularities in other European countries as well. Let’s take Austria, for example, which is the country I come from. It seems to be a lawful and well-organized country but we also have our oligarchs, or actually the combination of oligarchs and politicians, especially on the local level. If they enjoy wide support in their region, they are often more important than the Federal Chancellor, because they have more genuine influence on the community.
I don’t want to use this argument to excuse the inertia of the Ukrainian authorities, but rather to show that they are not the only ones who behave in this way in Europe.
Could the appointment of yet more foreign experts to high positions contribute to the acceleration of reforms, or will it be perceived as interference in the self-determination and perhaps even the sovereignty of Ukraine?
Sometimes it is easier for an outsider to put things in motion than it is for someone who is already in the middle of an existing system. As for sovereignty, I don’t think that it is threatened by the presence of foreign advisors. I have not heard any opinions from Ukrainians that foreign experts act to the detriment of the country or that they are unwelcome. On the contrary, they are held in high esteem. One example is Natalie Jaresko, an American of Ukrainian descent, who served as the Minister of Finance in the years 2014-2016. She had Western experience, she knew what she wanted to achieve in her position, and she was able to enforce it.
As long as foreign experts are welcomed in Ukraine, their presence should not be questioned. It would be worse if we had some elements of the colonial system, where some states impose certain specialists on the weaker countries.
The presence of foreign experts has many benefits, because even if their knowledge and skills are similar to those of the local professionals, they are still perceived differently by the public. When they declare that something is wrong, nobody questions that, and when they praise something, there is no doubt that they actually appreciate the given decision or process. This clarity is associated with the fact that they have no personal or financial interest in presenting a specific opinion, that they are independent.
Ukraine participates in a number of financial support programs run by the International Monetary Fund, the European Union and many other organizations. Foreign experts often have a better knowledge of the procedures than domestic specialists, and are able to more effectively evaluate projects.
Finally, the last reason is that a foreign expert who has authority in his own country and is not involved in the local networks can more easily convince a minister or some other decision-maker to take a particular decision.
What should be the plan of actions aimed at improving the economy, the country’s competitiveness and the transparency of procedures in the next two to three years? What areas require the most attention?
This is a system of communicating vessels. For example, the success in the fight against corruption will be largely dependent on the direction of the reform of the judiciary and the implementing legislation that is issued in connection with this reform.
Procedural acts that the government is working on are of a great importance. For example, the competencies of the prosecutors require clarification – in fact the entire structure of the prosecutor’s office should be reformed. The precise definition of things, such as the method of submitting applications to the court or the list of evidence, will determine whether Ukraine will finally have a good legal system.
The term of office of all the members of the Higher Judicial Council, which is an advisory and reviewing body in the field of the judiciary, will expire in April 2019. It has been reformed recently, but still needs to be improved. The Council must pursue the goal of promoting good candidates for judges and appointing specialists to the individual positions. The implementation of reforms will take years or will never succeed if the judiciary is full of dishonest people. Such a problem exists in Bulgaria, in which the judges still remain mentally attached to the previous political system. A lot can be achieved with good judges.
And what about the economy?
The Ukrainian market is strongly regulated and we should eliminate as many regulations as possible, because they constitute an unnecessary barrier. This will be one of the elements of removal of the remnants of the old system. We should not cease efforts aimed at transforming Ukraine from the post-Soviet system to a new one, adapted to the needs of the modern economy. This is especially important because the Russian economy is no longer able to motivate the Ukrainian economy in any way, as it is too weak itself.
Ukraine has to rely on trade with the countries of the European Union – the Deep and Comprehensive Free Trade Agreement (DCFTA) should help in this regard. The interesting thing is that the export of Ukrainian goods to the European Union is growing – slowly, but growing nonetheless. The problem is that the prices of agricultural products and steel, that is the group of products that Ukraine is selling in the largest quantities, are currently falling on the global markets due to various factors independent of Ukraine itself.
The country should introduce a new certification of goods, in order to move closer to European standards. As a result Ukrainian goods will gain popularity on other markets, not just in the EU. But first the recipients must become convinced that Ukrainian products are safe. This effort will pay off, because even if the EU market does not absorb these products, there are still other markets – the Far East, Africa etc. Once Ukrainian goods are suitable to be sold abroad (they don’t qualify right now), the EU will have to convince the Dutch, who rejected the ratification of the free trade agreement in a referendum in April 2016, to change their mind. The referendum was controversial in general and may have far-reaching consequences.
Was the rejection of the agreement in the referendum a dangerous signal?
Yes, because if any country can hold a referendum on a matter belonging to the competences of the European Commission, that creates a dangerous precedent. The Commission cannot give in and must clearly state that it will not give up on the DCFTA. Such a referendum calls into question the credibility of the European Union in general, because if one country can stop such a process, who would want to negotiate any agreement with Brussels?
Does sanctions imposed on Russia help Ukraine? Even in Poland some politicians are saying that it is time to lift the sanctions.
I am surprised that Poles would make such statements, because it’s not going to help Ukraine, nor the countries submitting such proposals. The countries of the European Union have been hurt not by the sanctions imposed by the EU, but by the sanctions that Russia applied in response. The fact that we lift the sanctions does not mean that Russia will automatically do the same. And even if they lift their sanctions, we cannot exclude the possibility that they will impose some other restrictions against European manufacturers and retailers, such as stringent phytosanitary requirements which European food products do not meet. Although officially the sanctions will not apply, the Russian market will remain closed (read more about the impact of Russia’s embargo on Western food products). That would in fact be in line with Russian policy, in which the sanctions are a tool and not a goal in itself.
We should keep in mind that the Russian market is shrinking, and that it is extremely protectionist, so the European Union’s turnover in trade with Russia will be falling regardless of whether the sanctions are lifted or not. We can see this on the example of trade between Russia and China, which is not thwarted by any limitations. Chinese companies are selling less and less, because the Russian recipients simply cannot afford to purchase large quantities of imported goods anymore.
By lifting the sanctions today, the European Union would become the object of ridicule, because its policy towards Russia is based heavily on sanctions. By withdrawing sanctions it would lose the only tool through which it can show Russia that there is no consent to aggression against other countries and the seizure of their territories. The lifting of sanctions would be seen by the Kremlin as evidence of the European Union’s weakness and would promote the belief that the EU can be manipulated.
Gustav Gressel is an analyst at the European Council on Foreign Relations and the author of the report “Keeping up appearances: How Europe is supporting Ukraine’s transformation”.